Stalled upward social mobility in America [UPDATED 2/14/12]

Rana Foroohar’s cover story in TIME (Nov. 2011) is entitled What Ever Happened to Upward Mobility? Her answer is that it has stalled in the US and fallen behind rates of upward mobility in the US, Sweden or Denmark. According to Foroohar (and based on a Pew study), a male born in the 1970s into the bottom fifth of the wealth distribution had only a 17% chance of making it to the top wealth quintile. And while 50% of young males in this low-wealth quintile remained stuck there in the US, it was only 30% in UK or 25% in Denmark and Sweden, so upward mobility was much higher in those nations. [Swedish economist Markus Jantti led the research project that uncovered these numbers.]

Foroohar (after consulting experts from places like Goldman Sachs) says that China and other emerging countries are driving inequality by taking away good middle class US jobs. Foroohar believes that the answer lies in more progressive tax rates (with fewer loopholes) and greater investments in public education (which is the engine of economic mobility).

We have been doing work on the connection between income inequality and social inequality among youth (that exacerbates the test score gaps) and will report on that later, but suffice it say that we find a connection between the “blue inequality” (income inequality) and “red inequality” (the ability of college graduates to pass on advantages from a generation to another) that David Brooks writes about.

In November 2011, a variety of non-profit, corporate, academic and media leaders convened to discuss social mobility in the Opportunity Nation summit. Opportunity Nation has released an Opportunity Index that enables you look state by state or county by county to see how that locality is doing in terms of economic opportunity. And you can see videos of some of the speakers here. Rick Warren cited an eye-opening statistic: 25% of Anglo kids, 50% of Hispanic kids, & 75% of black kids are growing up today without a stable father in the home (these are out of wedlock births). This work is picked up in Charles Murray’s Coming Apart and in Nick Kristoff’s “The White Underclass“.

The Economic Mobility Project/Brookings analyses break the parent and child generations into fifths on the basis of each generation’s income distribution. If being raised in the bottom fifth were not a disadvantage and socioeconomic outcomes were random, we would expect to see 20 percent of Americans who started in the bottom fifth remain there as adults, while 20 percent would end up in each of the other fifths. Instead, about 40 percent are unable to escape the bottom fifth. This trend holds true for other measures of mobility: About 40 percent of men will end up in low-skill work if their fathers had similar jobs, and about 40 percent will end up in the bottom fifth of family wealth (as opposed to income) if that’s where their parents were.

Is 40 percent a good or a bad number? On first reflection, it may seem impressive that 60 percent of those starting out in the bottom make it out. But most of them do not make it far out. Only a third make it to the top three fifths. Whether this is a level of upward mobility with which we should be satisfied is a question usefully approached by way of the following thought experiment: If you’re reading this essay, chances are pretty good that your household income puts you in one of the top two fifths, or that you can expect to be there at age 40. (We’re talking about roughly $90,000 for an entire household.) How would you feel about your child’s having only a 17 percent chance of achieving the equivalent status as an adult? That’s how many kids with parents in the bottom fifth around 1970 made it to the top two-fifths by the early 2000s. In fact, if the last generation is any guide, your child growing up in the top two-fifths today will have a 60 percent chance of being in the top two fifths as an adult. That’s the impact of picking the right parents — increasing the chances of ending up middle- to upper-middle class by a factor of three or four.

Two of most startling charts of testimony were one by CBO showing how the income of the top 1% is the one cohort that has done well over the last 40 years in the US economy:

And one showing that, unlike in most countries where progressive taxation is used to curb the excessive inequalities of the market and ease the distribution somewhat, the tax and transfer system in the US actually make inequality WORSE.